Russian energy giant Gazprom has claimed Ukraine is threatening to seize Russian gas transported through pipelines in the country to Europe.
Gazprom said the "blackmail" threat was made after it warned gas supplies to Ukraine would stop unless its neighbour signed a new contract by 1 January.
But Kiev insisted European gas supplies would not be interrupted due to the row over gas payments.
Ukraine says it has transferred the $1.5bn (£1bn) which it owes Gazprom.
But the Russian firm said it had not yet received the money from RosUkrEnergo - a Switzerland-registered gas trading company which is acting as an intermediary.
Gazprom says Ukraine owes more than $2bn, including fines.
Acknowledging that Ukraine had started paying off its gas debt, the Russian monopoly reiterated that there would be "no grounds for supplying gas to Ukraine" if a new contract was not signed.
At the same time, Gazprom promised to take all the possible measures to guarantee uninterrupted supplies to all the other European countries.
Talks continued in Moscow as the two sides also need to agree on a price for 2009 gas supplies to Ukraine.
There have been conflicting reports about whether Ukraine's Prime Minister will travel to Moscow for talks on the issue.
Gazprom's deputy chief executive Alexander Medvedev told a press conference "it seems a political intervention will be needed".
Ukraine is a key transit route of Russian gas to Europe, and it is feared that a supply cut could affect countries further west.
Gazprom, the world's largest gas producer, supplies a quarter of the European Union's gas needs, or 42% of EU's gas imports.
A similar row between Gazprom and Ukraine in 2006 led to gas shortages in several EU countries.http://news.bbc.co.uk/1/hi/business/7805770.stm